Sell-side Consensus: Imperial Brands

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Below is a summary of Imperial Brands price targets of major financial services firms which updated or reiterated their ratings in the past 12 months. Despite the occasional increases, average sell-side target for Imperial has drifted lower from £24 at the beginning of 2023 to £21.1 most recently.

Based on Imperial’s last closing price of £18.88, the implied upside is +12%. Strong free cash flow (price increases more than offsetting declining combustible volumes) and generous shareholder yield (8.1% dividend yield, £1.1Bn share repurchase program, adjusted net debt to EBITDA reduced to 1.9x) are the main sell-side propositions for Imperial. However, sell-side analysts have always been overly bullish on Imperial: over the past 5 years, Imperial’s actual share price has never caught up with the sell-side target (min gap: 10%, max gap: 70%) – PMI and Altria’s did while BAT was trading within 5% distance at one point.

See our “Point of Caution” as you interpret the table below.

Jan 23, 2024UBS£22.6Buy
Jan 22, 2024Jefferies£16.36£18.1Neutral
Jan 11, 2024Bank of America£18.7Neutral
Dec 8, 2023RBC£22£18Neutral*
Nov 20, 2023JP Morgan£23.5£22.5Buy**
Nov 17, 2023Goldman Sachs£22.8£23Buy
Nov 15, 2023Deutsche Bank£23.25£23.25Buy
Oct 6, 2023Citigroup £18.65£19.8Buy***
Sept 26, 2023Barclays£25£24Buy
Consensus£21.13N, 6B
*Outperform to Sector-perform **Over-weight ***Neutral to Buy

Point of Caution

Sell-side work has a level of influence on investors despite the fact that

– the accuracy and knowledge attributed to the analysts tend to be over-stated

– analyst targets are frequently criticized to be reactive, rather than predictive (i.e. following the actual price progression rather than foreseeing it)

– there are serious studies claiming that companies with the most ambitious analyst targets consistently generate subpar returns

– many suspect analysts are influenced by inherent conflicts of interests and business relationships.

Nevertheless, sell-side is an integral part of the business-investing ecosystem and we cover their work for the sake of completeness. Moreover, we need to underline that following decades-long stability in operating and competitive environment, the Tobacco Industry is experiencing a perfect storm of multi-dimensional and concurrent transformation (driven by the replacement of traditional cigarettes by RRP/NGPs) – a phenomenon that makes it more difficult than ever for the sell-side analysts to grasp the business/market dynamics and establish fairly accurate financial models.

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